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IIT. (Photo credit: ironypoisoning)

The delay in processing forms 8863, Education Credits, at the IRS is causing more trouble than just slowing down refunds. The delay, which was formally addressed this week by the Department of Education, is the result of "a technical error with a limited number of tax filing software products" and has affected hundreds of thousands of taxpayers including many who filed with H&R Block. In terms of timing, the glitch has added weeks onto processing times for returns generally submitted and processed by mid-to-late February and is making it difficult for some students to timely submit the FAFSA, or Free Application for Free Student Aid.

Each year, millions of students submit a FAFSA in the hope of securing financing for college, including available grants and in most cases, loans. For the 2011-2012 FAFSA period, 21,945,597 applications were submitted; one third of those applications were submitted in the first quarter.

FAFSA applications include specific financial information which is verified by the Department of Education. While helpful, students do not need to wait for their tax return to be processed by the IRS to complete and submit the FAFSA. The information can be entered manually onto the FAFSA, as opposed to using the FAFSA - IRS Data Retrieval Tool which automatically populates the form with data from the IRS, and amended as necessary. With this in mind, the Department of Education is encouraging students to file as complete an application as possible. The Department also reminded schools this week "that they could choose to collect paper copies of the tax returns, make any necessary FAFSA corrections, and make a tentative award to the student using the resultant ISIR."

However, verification of the FAFSA may include double-checking official tax information with the Internal Revenue Service. Without tax verification, no subsidized federal student aid (Title IV aid) can be disbursed. The lack of ability to verify information is creating a new headache for students, families and schools. While loan, grant and scholarship funds should be disbursed on time for the 2013-2014 year, the Department has acknowledged that "some families and their schools are concerned that important financial aid award information may not be available in time for families to make college-going decisions."

Yep. You read that right. With the high cost of college education - and the associated debt - a concern, many families carefully consider financial award packages as part of the final college decision process. Without the FAFSA, there may be no award letter in spring. Without the award letter, families may not be able to make a real cost comparison between similarly situated schools. And without that information, enrollment decisions could be difficult.

So far, timing on those forms in light of the processing errors is still a bit fuzzy. The IRS has issued a statement indicating that processing times are being stepped up, noting:

Typically, the review process for a situation like this takes up to 8 weeks. We are taking special steps to help taxpayers. This means the IRS may need as much as 4-6 weeks from this date to issue a refund to the taxpayer.

In the meantime, the Department of Education can't appear to do much else since "the requirement that verification be completed based on official IRS data is critical to our shared objective of ensuring that federal student aid is awarded in absolute compliance with the statute."

I'm continuing to monitor the story and I'll post updates as I receive them. You can view my related pieces here: